What Is Facebook Actually Worth?

Wednesday

May 27, 2009 at 4:18 AM

A Russian Internet investment group is plugging $200 million into the company for about a 2 percent stake. By that arithmetic, Facebook would be worth $10 billion.

Holy cow, Facebook is worth $10 billion? That may be how the social networking Web site would like the world to interpret its latest capital infusion. But don’t be fooled. While that may represent a target valuation for Facebook, the actual worth, today, of Mark Zuckerberg’s dorm room creation may be much lower.

That’s not to completely dismiss the headline figure. Under terms announced Tuesday, the Russian Internet investment group Digital Sky Technologies is plugging $200 million into the company for about a 2 percent stake. By that arithmetic, Facebook would indeed be worth $10 billion.

For a company that, by its own admission, won’t generate positive cash flow until sometime next year, that’s an impressive figure to bandy about. True, Facebook’s last capital-raising 18 months ago, which brought Microsoft and the Hong Kong tycoon Li Ka-shing in as investors, put a $15 billion price tag on the company. But considering the trajectory of financial markets since then, the valuation attached to Digital Sky’s trade actually looks even more robust.

Shares in the technology bellwethers Microsoft and Google have plunged about 45 percent since November 2007. Assume a similar decline in Facebook’s value and, on a market-adjusted basis, Digital Sky is arguably paying at least a 20 percent premium to Microsoft’s entry price, ignoring growth in Facebook’s business in the meantime.

Either way, though, for those trying to value Facebook, there’s a catch in these headline figures. The company didn’t sell just regular stock to Digital Sky or to Microsoft, for that matter. It sold preferred shares. The company won’t talk about the details, but these shares confer rights and privileges not attached to common stock. They are therefore worth more.

So while $10 billion could be a valuation Facebook and Digital Sky Technologies are aiming for, it probably doesn’t reflect the company’s market worth right now. But Digital Sky has also agreed to buy $100 million in shares held by Facebook employees. The price it pays for these shares — and the price at which insiders are willing to part with them, bereft as they are of special privileges — will reveal more about the company’s value today than any press release it might create.

Porsche Dialing 9-1-1?

The fog is slowly dissipating. Porsche, the German sports carmaker, may be keeping mum about the details of its finances as it struggles under its 9 billion euro ($12.58 billion) debt load. But recent leaks suggest the situation could be worse than previously thought. This should further strengthen the negotiating position of Volkswagen, the auto group in which Porsche has a 51 percent stake and which is a potential merger partner.

Porsche is showing signs of financial stress. The company has acknowledged obtaining a line of credit from VW three months ago. This was for some 700 million euros, according to German media reports. A German official also confirmed that government lender KfW Bankengruppe rejected Porsche’s application for a 300 million euro loan last week. The automaker was also recently looking for friendly investors in the Middle East.

Meanwhile, Porsche is sitting on options to buy about 20 percent more of VW, but it doesn’t have the money to exercise them, even though doing so would generate billions of euros of paper profits, according to analysts. Conversely, selling the options could start a freefall in VW’s stock price, and the proceeds wouldn’t cut Porsche’s debt much.

It may be that Porsche will have to turn to VW for more help. Ferdinand Piëch, the Volkswagen chairman who also heads of one of the feuding families that control Porsche, has his own solution. He has suggested that VW should buy Porsche’s car division using its approximately 8 billion euro cash pile. Porsche has, coincidentally, had its eye on this cash, but can’t get its hands on it because of the opposition of the state of Lower Saxony, which owns a 20 percent blocking minority interest in VW.

Going along with Mr. Piëch’s idea would probably bring its own misery for Porsche. With car deliveries down 27 percent in the last six months, the VW chairman would surely drive a hard bargain when it came to putting a value on Porsche’s business.

ROB COX and PIERRE BRIANÇON

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